Posted by: jhamon | August 3, 2009

Housing “Rebound”: Trouble Brewing at High End

Another one from my buddy CH. 

As we’ve observed locally in San Diego county, the already highly-discounted low end is moving well but the upper tier, where prices have hung in so far, is languishing badly in terms of closed transactions. 

With unemployment continuing to spike skyward, it seems intuitive that the lack of high end volume will ultimately result in price declines comparable to what we’ve seen in the low end.  The reason for the current disparity might be that higher end home buyers have been able to “hold their breath” longer than the more economically-at -risk lower end. 

But even the best breath holders reach their respective limits, and we may be seeing evidence of that right now.  From the WSJ:

KENILWORTH, Ill. — Housing is fast dividing into two markets: Sales of low- and moderately priced homes are picking up and values have stopped falling in some parts of the nation. But on the upper end, sales remain mired in a deep slump and price declines are expected to accelerate.

Signs of the divide are visible across the country, including in suburban Chicago. In middle-class Schaumburg, Ill., which had a median income of $65,000 in 2007, sales were up 41% in June from the depressed level of a year earlier and bidding wars have broken out on some properties. “I can’t even tell you how many I’ve been in over the last two months,” says Joe Stacy, a local real-estate agent.

But 25 miles away in the affluent town of Kenilworth, with a median income of $230,000, home sales have stalled. While there are 65 homes on the market, just 13 have sold this year. “We’re extremely oversupplied,” says Sherry Molitor, a local real-estate agent. “Sellers are struggling to realize that we’re back to 2001-02 prices.”

The divide between the mass market and the high-end — generally defined as homes that cost above $750,000 — partly reflects the effects of Washington’s housing-rescue plan, which is producing winners and losers.

 …

Trouble Brewing At High End

Trouble Brewing At High End

Inventory of expensive homes is rising. Overall, the inventory of unsold homes in June was enough to last 9.4 months at the current selling pace, down from 11 months a year ago, according to the NAR. But the supply of unsold homes priced above $750,000 swelled to around 17 months in June, up from a 14.5-month backlog one year ago. A recent forecast by analysts at J.P. Morgan Chase & Co. said it would take until at least 2012 for the expensive-home market to recover and that peak-to-trough declines could surpass 60%, compared to 40% for the rest of the market.

Defaults are rising, too. Among prime mortgages, jumbo mortgages are now leading delinquencies and defaults and are the fastest-rising category for defaults of all types of mortgages. The rate of 60-day delinquencies on prime-jumbo mortgages jumped to 7.4% in May, from 4.5% in November, according to First American CoreLogic. By comparison, 60-day delinquencies on prime-conforming loans reached 4.9% in May, from 3.6% in November.

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